Why Most SaaS Companies Need to Eventually Head Up Market

When you’re just starting out as a SaaS company, every little thing you do matters. You’ll pursue deals that you wouldn’t even consider a few years down the line, and you’ll do absolutely everything you can to cater to the few customers you have.

But by the time you hit $1M in revenue, you need to decide where you want to focus for longer term growth.

There are many growth strategies that can work well in SaaS, but if you have the potential to focus your efforts on going upmarket and playing for bigger deals, an enterprise-oriented approach can be tremendously effective.

Most aspiring SaaS companies aim to grow revenues in line with the T2D3 target – a lofty goal for any young company. The key question you have to ask yourself as an entrepreneur is how you can plan and drive that growth.

An enterprise approach allows you to grow your business by closing fewer deals at a higher contract value, securing long-term commitments and stable relationships with your customer base, and building a foundation of loyal customers that have large budgets to buy more of your products and services.

Once you get past $10M in annual recurring revenue (ARR), it becomes very difficult to add $10M+ a year in ARR by closing very small deals. It’s doable, as many great SaaS companies have shown us, but it’s undeniably easier to get there if your typical deal size is larger.

If you can get your average deal size up to $1M, you only need 10 new deals to double to a $10M business. This means that you only need 40-50 real opportunities each year in order to hit your growth goal.

Clearly, that’s much easier said than done, but the incremental revenue added from each enterprise deal is significantly more than it would be otherwise and the ability to focus on a small list of targets aligns your team’s efforts.

Companies that are willing to pay six figures or more for a solution are more likely to commit to longer-term deals with their vendors. It’s not easy to implement a solution that consumes a large budget, meaning that they want to bet on products and services that they intend to use for longer periods of time.

Additionally their organizations tend to be more stable and less likely to go out of business, unlike SMBs.

Enterprise buyers tend to not get involved with vendors for flings, as they much prefer to get married to their vendor of choice. This means that you can negotiate two to three year deals at the outset, which gives you a lot of stability in building and planning your business.

Larger companies also tend to have many different divisions. They’re often excited to purchase new capabilities and services from vendors they love, making the upsell and expansion possibilities much more impactful for your business.

Due to the complexity of large organizations and the close relationship you can build with your enterprise customers, you can quickly develop and launch new products and services that your buyers will be interested in implementing.

This contract growth and expansion potential means that you can create an upsell machine that can drive relatively cheap and low-risk growth. In a best case scenario, you can generate pre-orders for your new products, funding the development of new modules or offerings.

There’s no denying that every deal your company will ever win will help lead you to success. From a customer support and attention standpoint, it’s important to tend to your full customer base.

But if you’re looking for growth that will lay a stable and growing foundation for your business, enterprise deals are where your head needs to be, both in the near and distant future.

Matt TalbotMatt is the co-founder and CEO of GoSpotCheck (Techstars Class 10). Matt focuses on shaping the company strategy, financing and building the team. Before he started GoSpotCheck, he worked in corporate finance at Johnson & Johnson.

I’m not seeing the ‘why’ part; SaaS deal size is going to be dependant on the specific product you offer and value it provides an org, you can’t just generalize by saying ‘generate revenue by doing larger multi-year deals with enterprise clients’, if your product area is specific to one niche of the enterprise, there’s nowhere to grow, I think this is why so many SaaS companies hit a growth ceiling, which seems only natural.

Gabe Salzer

I agree with Kyle. You’ll also leave a vacuum open downstream for smaller companies to grow. They’ll eventually come up stream and become competition – and probably beat you – some standard Innovator’s Dilemma example.